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On Our Radar

Consumer Sentiment Jumps More than Expected in June

U.S. consumer confidence surged in early June on expectations that a tightening labor market would spur big wage raises, which could further stimulate spending and overall economic growth later this year.

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The upbeat consumer sentiment survey on Friday capped off a week of strong economic data and was the latest indication that growth was regaining momentum after a sluggish start to the second quarter.

The rise in sentiment came despite higher gasoline prices, which contributed to producer prices recording their biggest increase in more than 2-1/2 years in May.

Strong consumer confidence, together with a tightening labor market, bullish retail sales and firming inflation pressures may provide the Federal Reserve reassurance about the U.S. economic outlook amid expectations it will hike interest rates this year.

The U.S. central bank's policy-setting committee meets on Tuesday and Wednesday.

"While more progress needs to be seen before the Fed feels sufficiently confident in the sustainability of the recovery, they will certainly take comfort in the fact that things are beginning to move in the right direction," said Millan Mulraine, deputy chief economist at TD Securities in New York.

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The Fed has kept its benchmark overnight lending rate near zero since December 2008 and is not expected to raise rates before September.

The University of Michigan's consumer sentiment index rose to 94.6 in early June from 90.7 in May.

Consumers were the most favorable about their personal financial prospects since 2007, with households expecting the largest wage gains since 2008. Consumers also expected inflation to remain low over the foreseeable future.

"We could get more good news on the spending front in the coming months," said Bricklin Dwyer, an economist at BNP Paribas in New York. The economy contracted in the first quarter, weighed down by a host of factors, including bad weather, port disruptions and a strong dollar. Growth estimates for the second quarter were raised this week to as high as a 3.2 percent annual rate.

U.S. financial markets were little moved by Friday's data as traders focused on the latest twists in Greece's debt crisis. U.S. Treasury debt prices were higher, while the dollar slipped against a basket of currencies. U.S. stocks indexes also fell.

INFLATION STABILIZING

In a separate report, the Labor Department said its producer price index for final demand increased 0.5 percent last month, the largest gain since September 2012. It followed a 0.4 percent decline in April.

The data suggested an oil-driven downward drift in prices was nearing an end. The stabilization in inflation, together with tightening labor market could see inflation rise back toward the Fed's 2 percent target.

"Inflation pressures have a heartbeat and should rise further over the next year as the economy is at or very near full employment levels," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

In the year to May, the PPI fell 1.1 percent, marking the fourth straight 12-month decrease. Prices dropped 1.3 percent in the 12 months through April, the biggest fall since 2010.

A sharp decline in crude oil prices since last year and the strong dollar have weighed on producer prices.

Last month, gasoline prices surged 17 percent, the largest increase since August 2009. Food prices rose 0.8 percent in May, the biggest gain in just over a year, snapping five straight months of declines.

Higher food prices were driven by a shortage of eggs after an outbreak of bird flu led to the culling of millions of chickens. Wholesale egg prices soared a record 56.4 percent last month.

Higher gasoline and food prices are likely to feed into the May consumer price index. May consumer price data will be published next week.

The volatile trade services component, which mostly reflects profit margins at retailers and wholesalers, increased 0.6 percent in May after falling 0.8 percent in the prior month.

A key measure of underlying producer price pressures that excludes food, energy and trade services dipped 0.1 percent last month after ticking up 0.1 percent in April. The so-called core PPI was up 0.6 percent in the 12 months through May.